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Deckers OutdoorDECK -0.6095604748155278%Deckers Outdoor Corp.U.S.: NYSEUSD61.96
-0.38-0.6095604748155278%
/Date(1481320844967-0600)/
Volume (Delayed 15m)
:
562197AFTER HOURSUSD62.22
0.260.4196255648805681%
Volume (Delayed 15m)
:
2813
P/E Ratio
18.116959064327485Market Cap
2000178847.82181
Dividend Yield
N/ARev. per Employee
523104More quote details and news »DECKinYour ValueYour ChangeShort position
(ticker: DECK), which sells the iconic sheepskin boots ("UGGs Still Have Legs," June 4, 2012). We expected the stock, which had fallen 56%, to $53, from its 2011 high, to reverse course and rally to $75 as management took steps to offset a sharp rise in sheepskin prices and return more cash to shareholders.

Instead, Deckers continued to slide, closing Friday at $31.

Tempting as it is to limp away, we expect Deckers to rebound from here, albeit to the mid-$40s, not $75. For one thing, the shares trade for only 8.1 times next year's sharply lowered consensus earnings estimate of $3.77 a share. In addition, sheepskin prices could fall in coming months, and the company is cutting prices to reduce inventory. Deckers also is putting some new marketing muscle behind smaller brands, such as Teva and Sanuk, which account for about 10% of sales.

In an interview with Barron's last week, Deckers Chief Executive Angel Martinez and Chief Financial Officer Thomas George maintained that demand for UGGs was crimped in the past year by unusually warm weather and customers' resistance to the company's attempt to boost prices to offset a 70% rise in the past two years in sheepskin costs. "There is nothing wrong with the brand," Martinez says.

A couple of months ago management began cutting prices on classic UGGs, which retail for as much as $200 a pair. The Deckers executives note that sell-through at many major retailers turned positive following the price reductions, as well as the arrival of colder weather. Sheepskin prices are expected to fall 11% next year, which could help boost sagging profit margins.

"Weather is the wild card, but we see recent pricing action enabling Deckers to re-engage value shoppers and clear excess inventory this winter," Jason Asaeda, an analyst at Standard & Poor's, wrote in a recent report. "We also expect the company to gain turnaround traction in 2013 with more-affordable UGG styles, while improving product margins."

Jefferies analyst Randal Konik, who resumed coverage of Deckers last week with a Buy rating and a $50 price target, cited positive Google search trends, and a rise in visits to the company's Website, as signs the once red-hot brand remains "healthy." The analyst also believes the company's plans to roll out more retail stores, expand internationally and develop brand extensions will power growth.

Deckers recently lowered its fourth-quarter earnings guidance after reporting a 31% drop in third-quarter earnings on a 9% decrease in revenue. Inventories in the quarter shot up by 36%. Analysts expect the company to earn $3.37 for the full year, far from the $5.07 they earned a year ago. Sales could rise 4%, to $1.43 billion.

Some analysts see downside risk in the stock to $27. Sam Poser, an analyst at Sterne Agee, writes that "the worst is yet to come," and that order cancellations in the fourth quarter will lead the company to miss earnings.

Even so, Deckers appears to offer more reward than risk after its dreadful spill.